Construction cost volatility keeps Indian realty sector under pressure

India’s economic resilience, supported by strong domestic demand, infrastructure development and policy reforms, continues to drive steady growth in the real estate sector.  Against this backdrop, construction cost dynamics are becoming increasingly strategic. Volatility in input costs, constraints around labour availability, geopolitical uncertainties, supply chain disruptions including energy supplies, and tighter project timelines are directly influencing feasibility, capital deployment, and development timelines. The ability to anticipate and manage these variables is fast becoming a key differentiator for both developers and investors.

International property consultant Savills’ construction cost report seeks to bring these dynamics into sharper focus. By examining construction cost trends alongside sectoral shifts and evolving market drivers, it provides a clear view of how the sector is transforming.

The Indian construction market is valued at $685 billion in 2025, driven by the office sector, primarily led by the growth of GCCs alongside expansion of manufacturing, warehousing, and supply chain infrastructure, and the expanding residential sector. The market is set for strong growth, supported by continued investments in infrastructure and urban development, and is projected to grow to $1.2 trillion by 2034, with a 6.9% CAGR. Reinforcement steel prices have experienced moderate fluctuations from 2021 to 2025. Prices have gone up from INR 57,200 per MT in 2021 to INR 61,300 per MT in 2023 due to strong demand from real estate construction activities. Cement prices have shown an upward trend from 2021 to 2025. 

The minimum construction wage has risen by about 23% between April 2020 and April 2024, which is a result of the growing demand for labour and inflation, thereby pushing up the cost of construction.  Both building and fit-out costs increased steadily between 2023 and 2025, rising by about 6.5% on average.

The overall average development cost (excluding land) stands at INR 1.36 crore per key, with the median at approximately INR 1.04 crore. The cost range from budget to luxury is 6.2x, broadly consistent with the 2023 survey’s 6.5x ratio, showing the relative structure of development economics has remained stable, even as absolute costs have risen. 

Across India’s office sector, total development costs have increased by 6.4%-7.6% between 2023 and 2025, driven largely by a sharp 20-22% rise in MEP and 7-8% of FF&E costs.

Across key Indian manufacturing hubs, total direct costs show a relatively moderate increase, averaging 3.8% between 2023-2025, significantly lower than other asset classes.

Construction Costs for Grade-A Warehousing: Across India’s Grade-A warehousing sector, total construction costs have recorded a moderate increase of 4.8-6.1% between 2023 and 2025, with a uniform rise across building, MEP, and ancillary components.

Construction costs for malls across major Indian cities witnessed a 13.8% to 14.0% increase between 2023 and 2025, with an average escalation of 13.9%, indicating a largely uniform trend across markets.

Construction Costs for Affordable Residential Segment: Construction cost growth for the affordable residential segment during 2023-2025 remained elevated across all cities.

Construction Costs for Mid-End Residential Segment:  Overall cost change is strong and uniform across cities, with most markets clustered around 11.5-12.5%. 

Construction costs for luxury residential segment remains broad‑based and elevated between 12-13%, with Mumbai standing out as the highest (15.1%), reflecting intense demand and cost pressures, followed by Bengaluru, Delhi‑NCR, and Hyderabad, each at 12.9%, and Kolkata (10.8%).

Overall, the findings indicate that while cost pressures have remained a key concern, sectors have demonstrated strong adaptability through improved planning and execution strategies.

I am planning to invest in income generating property in India.  Is loan available for investing in such a category?  What are the tax benefits available while investing in such categories? Franklin Joseph, Sharjah.

You can make investment either in residential or commercial property with the sole objective of receiving a regular flow of rental income.  Tax benefits are also available.  From the rental income, you will get a 30 per cent standard deduction towards repairs, maintenance and collection charges of the property.  This deduction is available irrespective of the fact whether you spend on the repairs or not.  Moreover, complete deduction without any upper limit is available on the interest paid for the loan amount taken to purchase property which is given on rent.

I intend selling the commercial property gifted to me by my parents in Pune.  Can I repatriate the sale proceeds? Navin Jagesha, Dubai.

The sale proceeds of office space acquired by way of gift should be credited to NRO account only.  From the balance in the NRO account, you can remit upto USD one million, per financial year, subject to the satisfaction of authorised dealer and payment of applicable taxes.